Aviation and defense services provider AAR CORP (NYSE:AIR) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 19.5% year on year to $678.2 million. Its non-GAAP profit of $0.99 per share was 2.7% above analysts’ consensus estimates.
Revenue: $678.2 million vs analyst estimates of $697.7 million (19.5% year-on-year growth, 2.8% miss)
Adjusted EPS: $0.99 vs analyst estimates of $0.96 (2.7% beat)
Adjusted EBITDA: $81.2 million vs analyst estimates of $79.22 million (12% margin, 2.5% beat)
Operating Margin: 10.5%, up from 5.8% in the same quarter last year
Free Cash Flow was -$27.2 million, down from $14.6 million in the same quarter last year
Market Capitalization: $2.46 billion
"We delivered another strong quarter of significant year-over-year sales and earnings growth," said John M. Holmes, AAR's Chairman, President and Chief Executive Officer.
Company Overview
The first third-party MRO approved by the FAA for Safety Management System Requirements, AAR (NYSE:AIR) is a provider of aircraft maintenance services
Aerospace
Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, AAR’s 3.9% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.
AAR Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AAR’s annualized revenue growth of 18.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
AAR Year-On-Year Revenue Growth
We can better understand the company’s revenue dynamics by analyzing its three most important segments: Parts Supply, Repair & Engineering, and Integrated Solutions, which are 39.9%, 31.8%, and 24% of revenue. Over the last two years, AAR’s revenues in all three segments increased. Its Parts Supply revenue (engine and airframe parts) averaged year-on-year growth of 16.8% while its Repair & Engineering (maintenance, repair, and overhaul services) and Integrated Solutions (fleet management) revenues averaged 35.1% and 11.7%.
This quarter, AAR’s revenue grew by 19.5% year on year to $678.2 million but fell short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 7.7% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is above average for the sector and suggests the market is forecasting some success for its newer products and services.
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Operating Margin
AAR was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.4% was weak for an industrials business.
On the plus side, AAR’s operating margin rose by 2.4 percentage points over the last five years, as its sales growth gave it operating leverage.
AAR Trailing 12-Month Operating Margin (GAAP)
This quarter, AAR generated an operating profit margin of 10.5%, up 4.7 percentage points year on year. This increase was a welcome development and shows it was more efficient.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
AAR’s EPS grew at an unimpressive 7.2% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.9% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
AAR Trailing 12-Month EPS (Non-GAAP)
Diving into the nuances of AAR’s earnings can give us a better understanding of its performance. As we mentioned earlier, AAR’s operating margin expanded by 2.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For AAR, its two-year annual EPS growth of 13.8% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q1, AAR reported EPS at $0.99, up from $0.86 in the same quarter last year. This print beat analysts’ estimates by 2.7%. Over the next 12 months, Wall Street expects AAR’s full-year EPS of $3.64 to grow 18.8%.
Key Takeaways from AAR’s Q1 Results
It was encouraging to see AAR beat analysts’ EPS and EBITDA expectations this quarter. On the other hand, its revenue revenue missed Wall Street’s estimates due to weaker-than-anticipated performance in its Integrated Solutions segment. Overall, this quarter could have been better. The stock remained flat at $68 immediately after reporting.
